Punjab’s budget for 2022-23 is finally out, but not before Speaker Parvez Elahi used his office to stall its presentation for two days last week and the ruling coalition government led by the PML-N took away his powers to call or prorogue assembly sessions through an ordinance.
In a highly polarised political environment, with an eye on the upcoming by-polls on 20 provincial seats next month — the result of which will determine whether the coalition or the PTI commands a simple majority of 186 members in the full House and probably the timing of the next general elections in the country — it was natural for the fledgling Hamza Shehbaz administration to propose a fiscally loose budget to please the electorate in PML-N’s stranglehold.
Although many expected the Hamza Shehbaz government to distribute freebies among different segments of the population, it has restricted itself to boosting public-sector development spending and drastically raising allocation for subsidised wheat flour, public transport, food and such.
No wonder, the government has since been trumpeting the ‘highest-ever’ provincial development plan of Rs685 billion and its ‘relief programme’ of Rs392.08bn to shield the poor-to-middle income households from the adverse impact of steeply rising price inflation. The allocations for these two heads constitute a third of the proposed total consolidated fund of Rs3.23 trillion for the next year.
Following the Centre’s script of unrealistic numbers, Punjab has opted for benevolent but mostly wasteful subsidies
The allocations for the next fiscal year’s annual development programme (ADP) represent a 22 per cent increase over the original estimates for the current fiscal year but less than 6pc over the actual financing of Rs647bn.
The government claims it could have boosted funding for its public-sector development stimulus to about Rs800bn but for its decision to divert the available resources to provide subsidised wheat flour to the inflation-stricken poor-to-middle-income segments of society at 25pc less than its market rates of Rs65 a kilo at a hefty cost of Rs200bn over the next 12 months, starting from July 1.
The massive spike in Punjab’s subsidy bill has pushed the estimates for the current expenditure by a fifth to Rs1.71tr from the present fiscal year.
A deeper look at the numerous budget documents reveals that apart from increasing allocations for development and announcing the relief programme, the government hasn’t taken any significant governance or financial reform initiative or even tried to set the direction of its economic policies.
Thus, the budget can safely be hailed as an election-oriented plan aiming at short-term electoral gains through populist but mostly wasteful subsidies. None of the documents helps their readers to grab a true picture of the provincial economy.
Nor do these analyse the potential impact, of the projected economic slowdown in the wake of fiscal consolidation the federal government is going to implement for the restoration of the suspended International Monetary Fund programme, on the province’s revenues from both the transfers under the National Finance Commission award or provincial own tax and non-tax resources and its expenditure.
It is natural for the fledgling Hamza Shehbaz administration to propose a fiscally loose budget to please the electorate in PML-N’s stranglehold
The documents show that the fledgling government of Chief Minister Hamza Shehbaz has based its expenditure and revenue projections on the assumptions that a) the economy will grow by 5pc, b) the Federal Board of Revenue (FBR) will collect its tax target of Rs7t and inflation will stay down at 11.5pc.
If things move according to the federal script, Punjab wouldn’t find it difficult to meet its large tax and nontax revenue targets of Rs2.52tr, including federal transfers of 2.02tr and provincial tax of Rs337bn, to finance its development programme and massive current expenditure, including flour and other subsidies. But in a constrained fiscal and external environment, independent economists suggest, the country is unlikely to achieve its macro targets.
With economic growth widely projected to stay below 4pc, the FBR will find it hard to pull off its targeted tax revenue despite inflation staying well above the 11.5pc on rising domestic fuel and power prices and elevated global commodity rates. Punjab and other federating units will be compelled to drastically revise their exaggerated, unrealistic preliminary revenue and spending estimates.
The real estate market and construction activity, a major driver of growth, has already slowed down. The last few years have been very hard for most people, especially the low-middle-income households, stretching them to the breaking point. They need a break from rising price inflation.
Subsidies or cash handouts may help, but these initiatives can’t be a long-term substitute for reforms and policies required to create new jobs, support micro and small businesses and increase household incomes.
Punjab should focus on good fiscal housekeeping to prepare budgets based on realistic projections and targets for long–term prosperity of its people.
Published in Dawn, The Business and Finance Weekly, June 20th, 2022